Reset Janet’s loan back to $3500, 24% interest, but pretend she decided from the start that her pay-off goal was 4 years instead of 2. What is Janet’s new monthly payment?
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Subject:
Advanced Placement (AP) -
Author:
camilledzqz -
Created:
1 year ago
Answers 2
Using simple interest, it is fond that Janet’s new monthly payment is of $142.92.
Simple InterestSimple interest works like a simple linear function, in which the amount increases proportionally with the interest rate.
The amount of money after t years in simple interest is modeled by:
A(t) = A(0)(1 + rt)
In which:
- A(0) is the initial amount.
- r is the interest rate, as a decimal.
In this problem:
- The amount is of $3500, hence A(0) = 3500.
- The rate is of r = 0.24.
- She pays in 4 years, hence t = 4.
The total amount paid is of:
A(t) = A(0)(1 + rt)
A(4) = 3500[1 + (0.24)(4)]
A(4) = 6860
She pays in 4 x 12 = 48 months, hence the monthly payment is of:
$6860/48 = $142.92.
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